A subsidiary of HSBC, the high street bank, is working with PricewaterhouseCoopers to contact more than 160,000 customers who bought its payment protection insurance (PPI) products, to establish whether they had been disadvantaged by the purchase.

HFC Bank, which operates in the UK under the names Household Bank and Beneficial Finance, was yesterday hit with a record £1m fine after the city watchdog uncovered a series of flaws in the bank’s insurance sales.

HFC Bank sold PPI to more than 160,000 people between January 2005 and December 2007 without checking whether customers needed the cover. The bank also failed to keep proper records of its PPI sales, did not investigate possible cases of mis-selling and lacked a system which would have allowed senior managers to monitor the sales of PPI.

The bonuses paid to HFC's sales staff, worth up to 25% of their salaries, were heavily reliant on how much PPI they sold. Most of HFC's customers had impaired or non-existent credit histories so could not get finance elsewhere.

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